February 2019

Interim Budget 2019-2020, Tax Implications for Salaried

Interim Budget FY 2019-20 Highlights ! for Normal Salaried

Interim Budget – Highlights !

1. Full tax rebate for individuals earning up to Rs.5 lakh.

Tax savings largely for people earning about 5-10L annually.

Minimal impact for people in the higher tax slabs or earning say 15L+ etc. They still save about 3K annual for the savings on tax on 10K  increase in standard deduction

Tax Calculations with Provisions (Example of 10L+ Income and how it can go tax free.. Now)

Total Salary: 10.25 lacs *
Deductions
Housing Loan Interest 200k
Standard Deduction 50k
Sec 80C 150k
NPS 50k
Mediclaim Self 25k
Mediclaim Parents 50k*
Total Deduction 525k
Net Income 5 lac
Tax 12.5k
Rebate 12.5k
Net tax to pay ZERO

*80G and other deductions (as applicable) not taken into effect
*The above deductions are taken as example as majority of salaried people avail the same

2. TDS relief: There will be no TDS on interest earned up to Rs.40000 from savings bank account and post office savings schemes.Also, there will be no TDS on rental income of up to Rs.2.40 lakh per annum.

3. Higher standard deduction limit: Salaried individuals can claim standard deduction of up to Rs.50,000 (up from Rs.40,000) in lieu of transport and medical reimbursement.

4. Higher tax free gratuity: A good news for private sector employees. The government has proposed to double the approved ceiling limit for gratuity payouts from Rs 10 lakh to Rs 20 lakh. That means, gratuity of up to Rs.20 will not be taxable anymore.

5. No income tax on notional rent: So far, if an individual owned a second house, even if his house is vacant, he had to pay income tax on notional rent (i.e. market value of rent of the property in a particular location). However, individuals having unoccupied second house will not be required to pay tax on such a property.

6. Amending Section 54EC: Individuals can invest up to Rs.2 crore in two residential properties under Section 54 EC. At present, Section 54EC of the Income Tax Act lists the cases in which capital gains tax from long- term assets (held for more than three years) need not be charged if the gains are up to Rs. 1 crore and are invested in certain specified areas.

Points 5/6 are trying to give a boost to the sagging real estate market by introducing incentives for home purchases. I don’t think salaried people will start buying just yet considering that the prices in cities like Mumbai are still sky high. However it is good proposal for people with 2 houses or in the mode of selling etc.

Some interesting statistics

6.85 crore individuals have filed income tax returns last fiscal

The government has collected close to Rs.12 lakh crore from direct tax

 

January 2018

Reduce Tax , India Taxes, Save Money in tax , Year end TAX planning

Five SMART things to do in Jan / Feb / March from TAX perspective.

Last 3 months left for financial year end.
Five SMART things to do in Jan/  Feb / March from TAX perspective. (Financial Year End 2017-2018 ends in March)
1. Make sure that the 80C investments are done 1.5L for you and spouse(if applicable)
2. Check your short term Capital Gains (from Stocks/MF) – if possible plan to REDUCE GAIN by realizing losses (if any) from underperforming MF or Stocks
3. Check your Other sources of Income and make sure to pay timely Advance TAX to avoid interest cost later.
4. Do not generate income by means of selling assets (House/MF/Stocks/Bonds/etc) in Feb / March. POSTPONE it to April (next financial year)
5. Make timely declarations to your company for components like HRA/Interest/Loss from house property/80C declarations etc.
Conceptually, All the above helps INCREASE your monthly Cash Flow.
Plan to keep things SIMPLE. Simplicity is the way to BRILLIANCE….
… Kapil

October 2012

Cost of Inflation Index AY 2012-13 ~ Long term Capital Gains ~ Double Indexation

Double Indexation, FMP, Cost of Inflation Index AY 2012-13 ,To compute Long term Capital Gains Indexation, AY 2012-13, Tax Planning, Fixed Maturity Plans, Debt Funds Taxation, Real Estate Capital Gains
COST INFLATION INDEX TABLE – FINANCIAL YEAR 1981-82 ONWARDS:
Assessment Year (AY)
Financial Year (FY)
Cost Inflation Index (CII)
2014-15
2013-14
2013-14
2012-13
852
2012-13
2011-12
785
2011-12
2010-11
711
2010-11
2009-10
632
2009-10
2008-09
582
2008-09
2007-08
551
2007-08
2006-07
519
2006-07
2005-06
497
2005-06
2004-05
480
2004-05
2003-04
463
2003-04
2002-03
447
2002-03
2001-02
426
2001-02
2000-01
406
2000-01
1999-2000
389
1999-2000
1998-99
351
1998-99
1997-98
331
1997-98
1996-97
305
1996-97
1995-96
281
1995-96
1994-95
259
1994-95
1993-94
244
1993-94
1992-93
223
1992-93
1991-92
199
1991-92
1990-91
182
1990-91
1989-90
172
1989-90
1988-89
161
1988-89
1987-88
150
1987-88
1986-87
140
1986-87
1985-86
133
1985-86
1984-85
125
1984-85
1983-84
116
1983-84
1982-83
109
1982-83
1981-82
100

The cost of inflation index is useful for income-tax assesses in the computation of tax on long-term capital gains (for indexation purposes). In the previous two years, the cost inflation index rose 10 per cent and 12.5 per cent, respectively.

A cost inflation index helps reduce the inflationary gains, thereby reducing the long-term capital gains tax payout for the taxpayer. Currently, the income-tax law allows long-term capital gains to be computed after adjusting for inflation (Debt Mutual Funds, FMP’s, Real Estate Gains etc.) .

The cost of acquisition as well as the cost of improvement is adjusted for inflation between the date of purchase and date of sale (through the cost inflation index) before the long-term capital gain is ascertained. (~ The Hindu)

Assume, if the investor invested Rs 1,00,000 in the growth option on March 30, 2009 and redeemed the investment on April 2, 2010 for Rs 1,10,000 

The investment happened in financial year 2008-09, for which the government has declared cost inflation index of 582.

The investor redeemed the investment in financial year in 2010-11, for which the cost inflation index is 711.

The capital gains is Rs. 110,000 minus Rs. 100,000 i.e. Rs. 10,000.

The holding period is 367 days, which is more than 1 year. Therefore, it is a long term capital gain.

The maximum tax the investor has to bear is 10% (plus surcharge plus education cess) on the capital gain of Rs. 10,000. Thus, the maximum tax payable would be Rs. 1,000 (plus surcharge plus education cess).

Investor can benefit from indexation. The indexed cost of acquisition is Rs. 100,000 X 711 ÷ 582 i.e. Rs. 122,165. This is higher than the selling price of Rs. 110,000. Thus, the investor ends up with a long term capital loss of Rs. 12, 165. This can be set off against long term capital gains, as discussed in the next section.

Another point to note is that although the investor held the investment for slightly more than a year, the investor gets the benefit of indexation for two years viz. 2009-10 and 2010-11. Hence the name “double indexation” for such structures.

Mutual funds tend to come out with fixed maturity plans towards the end of every financial year to help them benefit from such double indexation. 

Largely investors are unaware about this benefit. This benefit can and should be taken by investing towards the end of a financial year, if the investor has surplus funds, because the capital gains virtually becomes tax free due to the double indexation benefit.